Gold and silver are tactical plays ahead of data storm, Powell's Senate testimony – Pepperstone

Precious metals could be a tactical play ahead of a data storm in the next two weeks, including Federal Reserve Chair Jerome Powell's testimony before the U.S. Senate, said Pepperstone's head of research Chris Weston.

It is getting harder to shock markets with higher-than-expected inflation numbers, and that reaction function is important for the gold market.

"The failure of the EUR … to be overly influenced by the above consensus French and Spanish CPI data suggests the market is becoming harder to shock by inflation reads. The risk-reward is shifting – the gold market will be watching this closely," said Weston Wednesday. "Gold and silver have come up on the radar, and both could be a tactical play as we eye a data storm brewing over the next two weeks."

The big market movers coming up are the U.S. employment (March 10) and inflation (March 14) reports. But all of this will be preceded by Powell's semiannual testimony before the U.S. Senate's banking committee on the Fed's monetary policy report, scheduled for March 7.

"That could spark some market volatility, but trading a speech is more problematic, as we're fighting algo's who are programmed to rapidly react to words," Weston noted.

This means traders need to gear up for higher intraday moves in the lead-up to the Fed's March monetary policy meeting, scheduled for March 22. "The market will tweak positioning into these defining events," Weston said.

Market consensus calls are projecting nonfarm payrolls to have added 200,000 new positions in February after the 517,000-shocker reported in January. The unemployment rate is estimated to tick up to 3.5% from 3.4%.

Weston forecasts the U.S. inflation (CPI) to come between 6% and 5.5% in February, a decent deceleration from the 6.4% reported in January.

"With gold so heavily inversely correlated to both nominal and real U.S. bond yields, I question if the market looks to pair back on their rates exposure into this data – a factor which could boost the gold price," Weston pointed out.

After February's $100 selloff, the gold market narrowly missed a bearish outside monthly reversal, according to Pepperstone. At the time of writing, April Comex gold futures were last at $1,845.10, up 0.46% on the day.

"Is this a sign of better demand and the sellers failing to push the price to $1,800? Perhaps – but it's early, and the price action needs work to really convince – adopting a more momentum approach," Weston said.

Pepperstone advises putting in buy-stop orders above Tuesday's high of $1,831.15 and positioning for the price to keep pushing higher.

"It may be that we see price rollover and re-test Tuesday's lows," Weston said. "As with any momentum and trend strategy, we get many false breaks, and the strike ratio can be far lower than, say, mean reversion, so it's important to cut losses early and extract as much out of the trade as possible."

By Anna Golubova

For Kitco News

Time to Buy Gold and Silver

Tim Moseley

Gold, silver gain on ideas of better future demand from China

Gold and silver prices are higher in midday U.S. trading Tuesday, but down from daily highs as the U.S. dollar index has rebounded from solid early losses. Falling U.S. Treasury yields on this day are supporting the precious metals markets. Some potentially positive news coming out of China is also working in favor of the metals market bulls. December gold was last up $8.00 at $1,648.50 and December silver was up $0.556 at $19.67.

Global stock and commodity markets were buoyed today by upbeat reports coming out of China. China stock markets rallied Tuesday on rumors the Chinese government has a plan to phase out its "zero covid" policies by as soon as March. China stock prices did back off their highs on reports Foreign Minister Zhao Lijian said he is not aware of the matter. China is the world's second-largest economy and if it gets rolling again, such would be significantly bullish on the demand front for commodities, including gold and silver.

Global stock markets were mostly firmer overnight. U.S. stock indexes are lower at midday on profit taking. Stock traders are done with the historically rocky months of September and October, after having a very good October, with near-term price uptrends in place on the daily charts for the indexes.

In other overnight news, Australia's central bank raised one of its main interest rates by 0.25%.

The World Gold Council has reportedly seen substantial, unreported buying of the yellow metal, as central bank bullion purchases hit a record in the third quarter. Reports said 400 metric tons of gold were bought by central banks last quarter, pushing purchases up to their highest since 1967. "Meantime, ETF selling amid soaring U.S. real yields has pushed gold prices lower, while central bankers have been meeting depressed prices with open arms," said broker SP Angel in an email dispatch Tuesday morning. The WGC reports Turkey and Qatar both ramped up purchases, with China and Russia also expected to be partaking, although their purchases are not reported, said the broker.

Gold demand hits pre-pandemic levels, increasing 28% in the third quarter despite dismal investor interest – World Gold Council

Traders are looking ahead to the Federal Reserve's Open Market Committee (FOMC) meeting that begins Tuesday morning and ends Wednesday afternoon with a statement and a press conference from Fed Chairman Jerome Powell. Most expect the FOMC to raise the Fed funds rate by another 0.75%. Traders and investors also want to see what comments the FOMC and Powell make regarding the future path of U.S. monetary policy—specifically, when the Fed will back off the accelerator on aggressively raising interest rates.

The key outside markets today see the U.S. dollar index slightly up. Nymex crude oil prices are higher and trading around $88.25 a barrel. The 10-year U.S. Treasury note is yielding 4.044%.

Technically, the gold futures bears have the solid overall near-term technical advantage. Prices are still in a longer-term downtrend on the daily bar chart. Bulls' next upside price objective is to produce a close above solid resistance at $1,700.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,600.00. First resistance is seen at today's high of $1,660.30 and then at $1,670.90. First support is seen at today's low of $1,633.60 and then at the October low of $1,641.20. Wyckoff's Market Rating: 2.5.

December silver futures prices hit a three-week high today. The silver bulls have gained the slight overall near-term technical advantage. Prices are now in a two-month-old uptrend on the daily bar chart. Silver bulls' next upside price objective is closing prices above solid technical resistance at the October high of $21.31. The next downside price objective for the bears is closing prices below solid support at $18.00. First resistance is seen at today's high of $20.04 and then at $20.50. Next support is seen at $19.50 and then at today's low of $19.085. Wyckoff's Market Rating: 5.5.

December N.Y. copper closed up 980 points at 347.30 cents today. Prices closed nearer the session high today. The copper bears still have the overall near-term technical advantage. However, recent price action suggests a market bottom is in place. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at the September high of 369.25 cents. The next downside price objective for the bears is closing prices below solid technical support at the September low of 324.30 cents. First resistance is seen at today's high of 350.15 cents and then at the October high of 359.30 cents. First support is seen at this week's low of 336.15 and then at the October low of 330.30 cents. Wyckoff's Market Rating: 4.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Will gold price benefit from classic bear market rally in equities?

There is a new battle in the gold market as the precious metal continues to benefit from a weaker U.S. dollar and falling bond yields; however, shifting risk sentiment, as equity markets end their seven-week losing streak with a 6% rally, presents a new headwind for the precious metal.

The gold market managed to hold steady around the critical psychological level of $1,850 this week as the U.S. dollar dropped from its highs earlier in the month. The U.S. dollar index ended the week below 102 points and is down 3% from its 20-year peak.

Meanwhile, bond yields have fallen to 2.74%, down more than 13% from their recent highs above 3%.

Nicky Shiels, head of metals strategy at MKS PAMP Group, said that the weak U.S. dollar and falling bond yields could help gold push solidly above $1,850 in the shortened trading week. However, she added that risk sentiment among equity investors will be a wild card.

"The missing piece is equities are entering a vicious short-covering rally now and there's limited panic about either a recession, stock crash, or Fed hikes," she said.

According to some market analysts, risk sentiment in the marketplace has improved inflation fears have receded. Investors breathed a little easier Friday after the U.S. Department of Commerce said that annual inflation rose 4.9% last month, down from 5.2% in March and from February's peak of 5.3%. Inflation fell in line with market expectations.

The data also reported healthy consumption; however, economists note that U.S. consumers continue to dip into their COVID-19 savings, which could be unsustainable.

Some economists have said that the inflation data gives the Federal Reserve some room to raise interest rates less aggressively in the fall and into year-end. Wednesday, the Federal Reserve signaled that it is looking to raise interest rates by 50-basis points at the next two meetings, in line with market expectations.

However, for many analysts, the current risk sentiment is not sustainable as inflation pressures are far from over, ultimately supporting gold.

Billionaire Bill Ackman says Fed needs to raise rates now to beat inflation, protect the economy

"Energy prices continue to rise and will drive inflation pressures higher," said Sean Lusk, Co-Director of Commercial Hedging with Walsh Trading. "Inflation will add to growing recession fears, making gold an attractive safe-haven asset."

Phillip Streible, Chief Market Strategist at Blue Line Futures, said he sees the jump in equity markets as a classic bear market rally. He added that he also considers gold a critical safe-haven asset.

"Technically, gold holding $1,850 an ounce looks good," he said. "Not only did gold see a solid bounce off last week's low, but its measure of volatility has fallen. Gold does well when it sees low volatility. Investors are attracted to that stability when there is uncertainty everywhere."

Not all analysts are optimistic that gold prices will be able to hold the line at $1,850 an ounce.

While inflation may have peaked, Bark Melek, head of commodity strategy at TD Securities, said it will remain quite sticky through 2022.

"It is probably more wishful thinking that inflation will fall significantly and that the Federal Reserve will stop aggressively raising interest rates," he said. "The Fed will continue to raise interest rates and that will be negative for gold."

Melek added that he still likes selling rallies in the gold market.

Some analysts have noted that a plateau in inflation within the Federal Reserve's aggressive tightening cycle will push real yields higher, making gold less attractive as a non-yielding asset.

 

" Looking at gold, in particular, the US TIPS yield is now comfortably in positive territory, which will dampen investment demand for gold given that it offers no yield," said commodity economists at Capital Economics.
 

U.S. data to provide little direction for markets

Although U.S. markets are closed Monday for Memorial Day, it will be a busy week for economic data.

Friday, economists and analysts will be anxious to see the latest non-farm payrolls report to see how the labor market fairs in the current economic environment.

While major data reports will be released next week, market analysts have said that they will have little impact on interest rate expectations.

Economists have said that the central bank looks set to move by 50-basis points at the following two monetary policy meetings, no matter what the data says.

Next Week's Data

Tuesday: U.S. Consumer Confidence

Wednesday: Bank of Canada monetary policy decision; ISM Manufacturing PMI

Thursday: ADP Non-Farm Employment Change

Friday: U.S. Non-Farm Payrolls; ISM Service Sector PMI
 

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold posts solid gains for the week as market participants focus on the economy

Gold prices closed higher on the day and the week resulting in solid gains. As of 5:50 PM, ET gold futures basis most active June contract is currently up $3.90 or 0.21% fixed at $1845.10. Considering that gold futures traded to a low this week of $1785 and closed near the highest value this week of $1848.60 gold had a good week.

Gold pricing had been under pressure for the fourth consecutive week before this week’s trading activity resulting in defined technical chart damage with gold breaking below its 200-day moving average last Thursday, May 12. This week’s low occurred on Monday, May 16 when gold prices hit a low of $1785, and traded to a high of $1825 before closing above its opening price on Monday and above Friday’s closing price at $1813.60. On Tuesday gold traded to a higher high and a higher low than Monday, even though gold closed fractionally lower than its opening price. On Wednesday gold traded to a lower low and a lower high than Tuesday’s price action but that all changed on Thursday.

Thursday’s price action moved gold solidly higher opening at $1816 and closing at $1841, above its 200-day moving average of $1837. Although today gold had only a small gain it opened and closed above its 200-day moving average which on a technical basis is significant. If gold can maintain pricing above $1837 on a technical basis, we can derive that gold prices are now back in a solid long-term bullish demeanor.

The recovery in gold this week was based upon market sentiment shifting their attention from the recent and future activities of the Federal Reserve in regards to their tightening monetary policy in which they have raised the Fed funds rate by ½ a percent at this month’s FOMC meeting which follows the quarter-percent rate hike they enacted in March. Recent statements by Chairman Powell indicated that they will get more aggressive when he said that he is open to raising rates well above the Federal Reserve’s interest rate target for normalization which is been set at approximately 2%. This was interpreted as a more aggressive monetary policy in an attempt to stop inflation from spiraling higher.

Statements from the Federal Reserve before this week were indicating that they believe that inflationary pressures had peaked and using the most recent numbers from last month’s CPI inflation index is the validation of that assumption. The CPI index came in at 8.3% for April, below the 8.5% rate that occurred in March.

It has been the tightening of the Federal Reserve’s monetary policy which has resulted in a tremendous selloff in U.S. equities which continue through this week taking all three major indices into a defined tailspin with seven consecutive weeks of price declines.

However, gold had been selling off for the last four consecutive trading weeks based upon anticipation of much higher interest rates to stave off inflation. However, this week we have seen a clear and defined reversal of market sentiment as investors are now clearly focused on the reality that inflation has not peaked and is most likely continuing to move higher and the prolonged risk-off market sentiment has shifted market sentiment from the higher yields of U.S. Treasuries to the safe-haven asset; gold

By Gary Wagner

Contributing to kitco.com

Time to buy Gold and Silver on the dips

Tim Moseley